Every company that sells you a product or service loves to sell add-ons. Car dealers pitch extended warranties, fancier wheels, and elaborate sound systems. Window replacement companies pitch tinting and automatic blinds. And life insurance companies pitch riders.
Jump ahead to these sections:
- What’s a Rider on a Life Insurance Policy?
- 7 Life Insurance Riders Explained
- More Life Insurance Riders
- Frequently Asked Questions: Life Insurance Riders
Life insurance agents are paid on commission, as are the salespeople of cars and replacement windows. The more products they can add to your contract, the bigger their commission will be. And that’s understandable—as long as the add-on is something you need and its value to you is worth the price.
This article will provide you with information on the most commonly offered life insurance riders, their costs, and their pros and cons. The article’s objective: to help you be a well-prepared consumer of life insurance the next time you’re looking at policies online or sitting with an agent.
What’s a Rider on a Life Insurance Policy?
A rider on a life insurance policy is an optional benefit or supplemental coverage you wouldn’t have received if you didn’t add it to your policy. Some riders come at an additional charge, and some are included in your regular premium.
Riders help you personalize your policy to meet the needs of you and your loved ones. They can provide you with immediate benefits, or they can help you down the road as you get older.
7 Life Insurance Riders Explained
Knowing the names of the various riders is helpful when you’re buying a life insurance policy; it’s always good to know your options so you can get the best coverage for your situation. As important as knowing the names of the various riders is, knowing how they work and what their benefits are is just as important. In other words, why should you add riders to your policy?
Let’s look at seven life insurance riders and some examples of when they are appropriate to add to a policy.
1. Guaranteed insurability rider
This rider lets you purchase additional life insurance protection without providing proof of insurability to the insurance company, such as answering any questions on an application about your health or having a medical exam.
The insurer has to accept your application for more coverage under several conditions:
- You’re under an age specified in the policy, which is typically age 40;
- You’re increasing your coverage during an “option period” specified by the insurance company, which is generally every three to five years; or
- You had a major life event occur, like marriage or the birth or adoption of a child.
The major benefit of this rider is that if you have an adverse change to your health and are no longer considered insurable, you’ll still be able to purchase more coverage.
Example: Carl was approved for a $250,000 whole life insurance policy at age 28. Five years later, Carl and his wife have their first baby, which gives him the option to add additional coverage to his existing policy at that time.
Unfortunately, Carl was diagnosed with a heart condition ten months before the child was born. He usually would have been declined by the insurance company when he tried to add coverage. But because of the guaranteed insurability rider, the insurance company must issue him the additional coverage.
2. Waiver of premium rider
This is a relatively low-cost rider that is not often used. The rider guarantees that if a disabling injury or illness lasts at least six months, the insurance company will waive any premiums that come due.
The insured must provide supporting medical information concerning the nature of the disability, treatment, and prognosis. The insurance company will return any premiums paid during the six-month waiting period to the policy owner.
Example: Karen injures her back and is declared “totally disabled” by her doctor and the Social Security Administration. Her monthly life insurance premium is $100.
After her sixth month of disability, Karen will receive back the money she paid in premiums during the six-month waiting period (a total of $600). The insurance company will waive her responsibility to pay any future premiums until she is no longer considered fully disabled.
3. Return of premium rider
This rider provides a refund of some or all of the premiums you paid if you outlive your term life insurance policy. It seems too good to be true, and it is—it can triple your standard life insurance premium while you have the policy.
Example: Ted bought a $300,000 term life insurance policy with a 30-year time limit on it, meaning that if he lives for the next 30 years, the coverage will expire. He bought the insurance when he took out a 30-year mortgage.
Getting his money back after 30 years when he no longer has a mortgage to protect could work to his financial advantage, depending on how much extra premiums he paid over the 30 years to have this rider.
4. Accidental death rider
Often called a “double indemnity rider,” this rider will pay double the policy's face amount to your beneficiaries if you die by accidental causes. That means that if you own a $500,000 life insurance policy and die because of a covered accident, your beneficiary would receive $1 million.
However, there’s a slight catch. Certain exclusions apply that will prevent the insurer from paying out double the face amount, such as if you died as a result of:
- Mental illness
- Alcohol in combination with drugs or medications
- Committing a crime
This rider costs extra and can be added up until the insured reaches a certain age, typically around age 65. The insurer can decrease the death benefit after you reach a certain age, usually age 70.
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5. Accelerated death benefit rider
This rider allows you to receive a portion of the death benefit while you’re still alive if you experience a qualifying event, which could include:
- Diagnosis of a terminal illness with a life expectancy of under two years, confirmed by a doctor
- Organ transplants
- Need for continuous life support or long-term care
- A permanent move to a nursing home
Some companies limit the amount of the face amount they’ll pay in advance, typically to 75%. For example, if the death benefit is $100,000, the life insurance company would only pay an accelerated death benefit of $75,000. The amount paid in advance is subtracted from the original face amount of the policy. In this example, that means the beneficiary would receive a payout of $25,000 after the insured person’s death.
6. Long-term care rider
Like an accelerated benefit rider, this is a rider that allows you early access to your death benefit while you’re living if you’ve been diagnosed with a chronic illness that prevents you from executing some activities of daily living, such as bathing, eating, or dressing.
The money received can be used however you see fit, but it will be subtracted from your death benefit when you pass away. Long-term care policies you buy individually do not include a death benefit, like your life insurance policy with the long-term care rider does. Many life insurance agents can also help you with long-term care insurance for parents.
7. Term conversion rider
Term life insurance is a popular type of life insurance because it’s the least expensive to buy, and you only keep it for a set term because you have a temporary need. A good example is someone buying an inexpensive 15-year term life policy to cover a 15-year mortgage.
Some people are satisfied to have term insurance when they’re younger, but they would like to have the option to convert the term policy to a whole life or universal life policy when they’re older. This is a valuable rider for those individuals because it guarantees that the policy owner can convert the term policy for a fixed price and for a fixed amount of time.
People usually want to convert not only to lock in the premiums for the rest of their life but also to have a policy that will accumulate a cash value that they can borrow or withdraw in future years.
More Life Insurance Riders
There are other, less common riders available that a life insurance agent can explain to you, including:
- Child term rider
- Spousal insurance rider
- Family income benefit rider
- Disability income rider
- Cost of living rider
- Critical or chronic illness rider
The cost of a rider on a life insurance policy is going to vary from insured to insured and from policy to policy. There is no set cost for a rider, just as there is no set cost for a life insurance policy.
For example, a long-term care rider may cost a 33-year-old male $17 per month, while the same rider would cost a 45-year-old male $52 per month.
Frequently Asked Questions: Life Insurance Riders
Do you still have questions about life insurance riders? The answers to these FAQs might be able to help.
How do you know if a rider is worth it?
This depends on your particular situation and which rider it is. For example, a retired 65-year-old probably doesn’t really need a waiver of premium rider but could benefit greatly from either an accelerated death benefit rider or a long-term care rider.
Can you sign up for a rider at any time?
That depends on the rider. You can add a rider like a waiver of premium at any time because the insurance company wouldn’t let you add it if you were already sick or disabled. But a rider with a potentially large payout, like a long-term care rider, usually must be added when you initially take out the policy.
Can you cancel a rider at any time?
Yes, riders can be canceled at any time because the insurance company is no longer carrying the risk of paying a claim related to that rider. A life insurance company must let you cancel a policy whenever you want, as well as any riders you added to the policy, but you won’t be able to add back a rider you canceled.
Getting the Right Policy With the Right Riders
Though most people don’t like talking about death and life insurance, a qualified, professional life insurance agent can help you find a life insurance policy that’s right for you and your family and give you good, solid advice on which riders to add and which not to add.